Doubt Cast on $50 Billion Figure in Madoff Case

His name and that number have become inseparable in describing the enormity of what has been called the largest white-collar fraud in history. It's a figure that has helped demonize Madoff and relegate big-time money managers charged in subsequent securities schemes to mere "mini-Madoff" status.

Investigators claim Madoff himself told them that he stole $50 billion, but it is becoming increasingly clear that the number may be as fictitious as the sprawling fraud that he allegedly ran.

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A growing number of people involved in the case and outside observers are saying that the actual loss to investors could be far less than the mind-boggling total often treated as fact. The actual number is not known at this point, but some believe it's less than $20 billion.

"I'd be pulling a number out of the air," Stephen Harbeck, president of the Securities Investor Protection, told The Associated Press this week when asked how much money he thought was swindled.

Harbeck said he believes the $50 billion estimate is unreliable because it "includes entirely fictitious profits" that Madoff said he brought investors over the years. Even the $17.1 billion that the SEC recorded last year as being held by Madoff Investment Securities — once thought to be the legitimate side of his operation—"does not appear to reflect reality," he added.

"I think it's somewhat misleading to say this was a $50 billion scheme because I believe that includes the fictitious profits," he said Thursday. "If that is the case, and I believe it to be the case, then the real dollars lost would be considerably lower."

Madoff, 70, was arrested late last year, a day after meeting with his sons and telling them that his secretive investment advisory business was "basically a giant Ponzi scheme," a criminal complaint said. He "estimated the losses from this fraud to be at least $50 billion," the complaint said.

The disgraced financier remains under house arrest in his Manhattan apartment while the FBI, the Securities and Exchange Commission and a court-appointed trustee labor to measure the true scope of the fraud. The Securities Investor Protection, an industry-funded organization that steps in when a brokerage firm fails, has been helping process hundreds of claims by investors hoping to recoup losses.

"It's an unprecedented Ponzi scheme, but the extent of it we'll know once the claims are filed," Harbeck said.

It remains unclear how much burned investors will ultimately say they're owed. They have until July 2 to file claims with the trustee.

A spokesman for a court-appointed trustee overseeing the liquidation of Madoff's operation said Thursday that so far only about $1 billion in assets have been recovered: $650 million from bank accounts and other financial institutions; $132.3 million securities that have been sold; and $161 million in securities still invested.

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Bernard Madoff

In the weeks after Madoff's arrest, various news organizations and other groups began compiling a list of Madoff losses that totaled around $30 billion. Those estimates were based on a list of institutional and individual investors and how much they lost—sometimes in the billions.

But it's likely those estimates were based on monthly statements that investigators say were fabricated, said Alan E. Weiner, a partner in Holtz Rubenstein Reminick, a Long Island accounting firm.

The $50 billion "appears to be a number that (Madoff) just threw out," Weiner said. "It could be the total value on all the fallacious statements. I don't think it represents the cash that people put in."

Former SEC head Harvey Pitt agreed that Madoff "probably inflated the amount of money he had under management." He predicted the actual loss would fall below $17 billion.

"But there's no question the amounts are probably north of $10 billion and that's a lot of money by anyone's reckoning," he said at a recent forum on the case.

Even $10 billion would eclipse other recent fraud cases. They include that of Florida hedge fund manager Arthur Nadel, accused of bilking investors out of up to $350 million, and Mark Dreier, a prominent lawyer charged with stealing $400 million in a hedge fund scam. Authorities believe Texas billionaire R. Allen Stanford perpetrated an $8 billion investment fraud.

The Nadel case demonstrated the ripple effect of the avalanche of publicity around the purported $50 billion scam: Investigators say Nadel's crimes were exposed when his partners, spooked by the Madoff case, asked for an independent audit of the defendant's business.

Similarly, a New Jersey fund manager, James Nicholson, was arrested last week in yet another alleged scheme that fell apart after several leery investors tried to redeem their money. Prosecutors say his fraud could reach $900 million—a size that might have dominated headlines, pre-Madoff.

In Madoff's case, the portrayal of him as a monster-size fraudster has led to enough fears about his safety that it was his lawyers who first sought 24-hour protection for him while he remains under house arrest.

Some of the heat has even fallen on his lawyer, Ira Sorkin, who said he has referred two death threats against himself to the FBI and has been subjected to more than a dozen vicious e-mails and phone calls.

Ron Kuby, a lawyer who in the 1990s once represented a blind Egyptian sheik charged with trying to overthrow the U.S. government, said the threats come with the territory.